Given below are two statements:
Assertion (A): Low longer-term interest rates are beneficial for construction companies and automobile manufacturers.
Reason (R): A rise in the disposable income of people due to an increase in the gross domestic product of a country creates increasing demand for products.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): Low longer-term interest rates are beneficial for construction companies and automobile manufacturers. — True. Low rates lead to more spending by consumers on homes and cars bought with borrowed money.
Reason (R): A rise in the disposable income of people due to an increase in the gross domestic product of a country creates increasing demand for products. — True. When the GDP grows, people have more income to spend, so the demand for products rises.
Why R does not explain A?
R is about a rise in income. A is about interest rates. A rise in income does not tell us why low interest rates help these firms.
The correct reason for A is that low longer-term rates make borrowing cheaper. So more consumers take loans to buy homes and cars, and the sales of construction companies and car makers go up.
NCERT (2026-27 Edition): “(i) Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise. Short and long term interest rates significantly affect the demand for product and services. For example, in case of construction companies and automobile manufacturers, low longer-term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money. Similarly, a rise in the disposable income of people due to increase in the gross domestic product of a country creates increasing demand for products. …” |